Understand the drivers of factor investing, investor experiences, and methods of implementation.
In our first theme, we focus on the synthesis between factor investing and ESG, with around half of global respondents using factors to help incorporate. We find that factor investing is seen as more compatible with ESG than a market-weighted approach but lagging fundamental active. Respondents expressed a widespread belief that ESG can potentially enhance performance, while there is a lack of consensus as to whether ESG itself should be defined as an investment factor.
In our second theme, we explore the continued rise of factor investing in fixed income, with 55% of investors now using factors in this asset class, up from 40% in last year’s study. Nearly half of global respondents indicated the low yield environment had made a factor approach in fixed income more attractive, offering an opportunity for uncovering untapped sources of return potential and additional diversification.
In theme three, we take a deep dive into methods of factor implementation and explore how investors are using factors to navigate the market uncertainty and changing economic realities. Some 48% of global respondents report making long-term strategic adjustments to targeted factor exposures, for example based on expected performance at different points in the cycle. This dynamism looks set to accelerate, with 41% of investors expecting their approach to be more dynamic over the next two years.
In theme four, we explore the impact of the COVID-19 pandemic on factor allocations and performance. The pandemic was seen as a test of the factor approach, with the ability of factor allocations to keep pace in terms of performance during a volatile period viewed as important for imbuing long-term confidence in a factor approach. An increase in allocations to the value factor, first identified in in last year’s report, continued this year. Growing factor allocations reflect broader adoption, as investors increasingly consider factors in the context of the whole portfolio and in asset classes beyond equities.
Why we believe quantitative investing is the perfect partner for ESG
Invesco Quantitative Strategies understands the importance of managing environmental, social and governance risk to get the best results from portfolios. Here we explain why our quant management team’s ESG approach makes the difference.
A factor play on inflation
With inflation on the rise it’s about time to dust off the inflation playbook. We investigate the impact inflation has had on the Value, Momentum and Quality factors historically and how investors may want to approach their factor exposures.
IQS factors 2020/21: Looking back and ahead
2020 was an unfavourable year for factor-based strategies though factors behaved largely in an expected manner. Size was the only factor in positive territory, while Momentum and Quality moderately underperformed and Value and Low Risk were the worst factors.
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This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.
